A = ([C / R]† * L) - D
A = Amount Payable
C = Amount of Coverage Purchased
R = Property Value * Coinsurance percentage
L = Loss
D = Deductible
†This ratio is never to exceed 1.
Many property policies have a coinsurance clause which requires a policyholders to purchase insurance coverage which is at least equal in value to a specified percentage of the actual cash value of the property.
If a loss occurs and it is determined that the amount of insurance purchased is less than the amount required, a penalty could be applied and the insurance company will pay only a portion of the loss.
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